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Inflation and unemployment in Switzerland: from 1970 to 2050

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  • Oleg Kitov
  • Ivan Kitov

Abstract

An empirical model is presented linking inflation and unemployment rate to the change in the level of labour force in Switzerland. The involved variables are found to be cointegrated and we estimate lagged linear deterministic relationships using the method of cumulative curves, a simplified version of the 1D Boundary Elements Method. The model yields very accurate predictions of the inflation rate on a three year horizon. The results are coherent with the models estimated previously for the US, Japan, France and other developed countries and provide additional validation of our quantitative framework based solely on labour force. Finally, given the importance of inflation forecasts for the Swiss monetary policy, we present a prediction extended into 2050 based on official projections of the labour force level.

Suggested Citation

  • Oleg Kitov & Ivan Kitov, 2011. "Inflation and unemployment in Switzerland: from 1970 to 2050," Papers 1102.5405, arXiv.org.
    • Handle: RePEc:arx:papers:1102.5405
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    References listed on IDEAS

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    1. Ivan O. Kitov, 2006. "Inflation, unemployment, labor force change in the USA," Working Papers 28, ECINEQ, Society for the Study of Economic Inequality.
    2. James H. Stock & Mark W. Watson, 2008. "Phillips curve inflation forecasts," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
    3. Ivan O. KITOV & Oleg I. KITOV, 2010. "Dynamics Of Unemployment And Inflation In Western Europe: Solution By The 1- D Boundary Elements Method," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 5(2(12)/Sum), pages 94-113.
    4. Simone Elmer & Thomas Maag, 2009. "The Persistence of Inflation in Switzerland," KOF Working papers 09-235, KOF Swiss Economic Institute, ETH Zurich.
    5. Ernst Baltensperger & Philipp Hildebrand & Thomas Jordan, 2007. "The Swiss National Bank's monetary policy concept - an example of a 'principles-based' policy framework," Economic Studies 2007-03, Swiss National Bank.
    6. Caesar Lack, 2006. "Forecasting Swiss inflation using VAR models," Economic Studies 2006-02, Swiss National Bank.
    7. Veli YILANCI, 2008. "Are Unemployment Rates Nonstationary or Nonlinear? Evidence from 19 OECD Countries," Economics Bulletin, AccessEcon, vol. 3(47), pages 1-5.
    8. Petra Gerlach-Kristen, 2007. "A Two-Pillar Phillips Curve for Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 143(IV), pages 425-448, December.
    9. Christopher A Sims, 2009. "Inflation expectations, uncertainty and monetary policy," BIS Working Papers 275, Bank for International Settlements.
    10. repec:ebl:ecbull:v:3:y:2008:i:47:p:1-5 is not listed on IDEAS
    11. Lisi GAETANO, 2010. "The Unemployment Volatility Puzzle: The Role Of The Underground Economy," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 5(2(12)/Sum), pages 59-69.
    12. Thorsten Hock & Patrick Zimmermann, 2005. "Forecasting Monetary Policy in Switzerland: Some Empirical Assistance," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 19(2), pages 201-212, August.
    13. Kitov, Ivan, 2007. "Inflation, unemployment, labor force change in European countries," MPRA Paper 14557, University Library of Munich, Germany.
    14. Dr. Samuel Reynard, 2006. "Money and the Great Disinflation," Working Papers 2006-07, Swiss National Bank.
    15. Joseph Deutsch & Yves Flückiger & Jacques Silber, 2008. "On various ways of measuring unemployment, with applications to Switzerland," Research on Economic Inequality, in: Inequality and Opportunity: Papers from the Second ECINEQ Society Meeting, pages 259-284, Emerald Group Publishing Limited.
    16. Kitov, Ivan & Kitov, Oleg & Dolinskaya, Svetlana, 2007. "Inflation as a function of labor force change rate: cointegration test for the USA," MPRA Paper 2734, University Library of Munich, Germany.
    17. Libich, Jan, 2008. "An explicit inflation target as a commitment device," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 43-68, March.
    18. Laura Ungureanu & Ion Viorel Matei, 2007. "Nonlinear Problems In Economic Development," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 2(1(2)_Fall).
    19. Andrew Atkeson & Lee E. Ohanian, 2001. "Are Phillips curves useful for forecasting inflation?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 25(Win), pages 2-11.
    20. Hock, Thorsten & Zimmermann, Patrick, 2005. "Forecasting monetary policy in Switzerland: Some empirical assistance," W.E.P. - Würzburg Economic Papers 60, University of Würzburg, Department of Economics.
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    Cited by:

    1. Touny, Mahmoud, 2013. "Investigate the Long-Run Trade-Off between Inflation and Unemployment in Egypt," MPRA Paper 54561, University Library of Munich, Germany.
    2. Mirdala, Rajmund, 2012. "Interest Rates Determination and Crisis Puzzle (Empirical Evidence from the European Transition Economies)," MPRA Paper 43756, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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